Stocks Rally on Valuations, Spanish Bond Sale; Oil Jumps
By Kelly Bit and Stephen Kirkland
July 6 (Bloomberg) -- Stocks rallied, with the Standard & Poor’s 500 Index rebounding from a 10-month low, after global equities traded at the cheapest level relative to earnings since 2009 and a Spanish bond sale quelled concern the nation will struggle to fund its deficit. Oil climbed and the dollar fell.
The S&P 500 jumped 1.9 percent to 1,042.03 at 10:14 a.m. in New York. The MSCI World Index of stocks in 24 developed nations rose 2.4 percent, the most in three weeks. The Shanghai Composite Index gained 1.9 percent before Agricultural Bank of China Ltd.’s initial public offering. Oil surged 1.8 percent to top $73 a barrel. Treasuries were little changed while the dollar weakened against all 16 major currencies.
Analysts are raising earnings estimates for U.S. companies at the fastest rate since at least 2004, while the MSCI World of equities in 24 developed nations traded at 15 times reported earnings yesterday, the lowest level since March 2009. Spain’s IBEX 35 Index surged 4 percent as the nation sold 6 billion euros ($7.6 billion) in bonds, its first syndicated issue since February.
“The markets are oversold short-term and we’ve had a fair amount of weakness the last couple of weeks,” said Mark Bronzo, an Irvington, New York-based fund manager at Security Global Investors, which oversees $23 billion. “Now we’re about to get earnings. Most people feel earnings will be okay and maybe guidance will be a little conservative. You’ll see less shorting before earnings, that’ll give the market a lift.”
Losses Pared
The S&P 500 erased about a quarter of last week’s 5 percent tumble today as commodity producers, technology and financial companies led gains among all 10 industry groups.
Profit for S&P 500 companies will jump 34 percent in 2010, compared with a projected gain of 27 percent on March 29, according to more than 8,000 estimates compiled by Bloomberg. The revisions, the most during any quarter in at least six years, come as lower-than-forecast home sales, manufacturing and private-sector job growth sent the benchmark gauge for American equities down 16 percent since April 23.
Equities maintained gains even after the Institute for Supply Management’s index of non-manufacturing businesses, which covers about 90 percent of the economy, fell to 53.8 in June from 55.4 the prior month. Readings above 50 signal expansion. Economists projected the index would fall to 55, according to the median of 59 forecasts.
BP Rallies
More than 70 stocks rose for every one that fell in the Stoxx 600, with mining companies Rio Tinto Group and BHP Billiton Ltd. rallying more than 4.6 percent. BP Plc climbed 2.8 percent in London as drilling for the relief well that will kill off the Gulf of Mexico oil spill advanced ahead of schedule and the company said it has no plans to sell new shares to raise cash. Banco Santander SA, Spain’s largest lender, jumped 5.7 percent, leading the IBEX to its biggest gain in three weeks.
Today’s gains in stocks come even as former International Monetary Fund chief economist Kenneth Rogoff warned China’s property market is beginning a “collapse” that will hit the nation’s banking system, and Europe is in “denial” about its lenders.
The MSCI Asia Pacific Index advanced 1.5 percent, its biggest gain in two weeks. Commonwealth Bank of Australia, the country’s largest bank by market value, jumped 2.3 percent in Sydney after the central bank kept its benchmark interest rate unchanged.
China IPO
China’s Shanghai Composite gauge climbed the most in two weeks as stocks rebounded from the lowest level relative to earnings in 18 months. Agricultural Bank, China’s largest lender by customers, priced shares in the Shanghai part of its initial public offering at 2.68 yuan apiece, two people with knowledge of the matter said. The shares were priced at the top end of the offered range, raising 59.6 billion yuan ($8.79 billion). The price of the Hong Kong portion has not yet been set, the people said, declining to be identified before an announcement.
The MSCI Emerging Markets Index advanced 1.7 percent, while developing-nation currencies strengthened and bonds rose.
European bonds fell, with the German bund’s decline driving the yield up from within five basis points of the lowest level since at least 1989. The yield on Spain’s 10-year bond rose 5 basis points to 4.66 percent. The Mediterranean nation sold new notes due in October 2020 that were priced to yield 195 basis points more than the benchmark swap rate, or about 4.85 percent, according to a person with knowledge of the deal.
The cost of insuring Spain’s debt fell today on speculation a successful bond sale will help the government plug the euro region’s third-largest budget deficit. Credit-default swaps on the nation dropped 10.5 basis points to 254.5, compared with a record-high closing price of 274.5 on May 6, according to CMA DataVision.
Default swaps on the Markit iTraxx Crossover Index of 50 mostly junk-rated European companies dropped 7 basis points to 561.5, the lowest since June 28, according to Markit Group Ltd.
Yen Weakens
The yen depreciated 0.5 percent to 110.57 per euro and slipped 0.1 percent to 87.81 against the dollar. Australia’s dollar climbed against all 16 of its most traded peers, rising 1.7 percent against the U.S. dollar, after the Reserve Bank of Australia said that consumer spending and business investment are expanding even as policy makers held their key rate steady.
Copper for delivery in three months climbed 2.8 percent to $6,647.25 a metric ton on the London Metal Exchange as inventories slipped to a seven-month low. Wheat futures in Chicago jumped to $5.1425 a bushel, the highest price since May 10, on speculation dry weather in Russia and other producing countries will reduce supplies.
Oil rose for the first time in six days, advancing 1.8 percent to $73.42 a barrel.
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